Fears Silicon Valley Bank collapse could hit First Republic Bank, as investors voice concerns about losses on its investments and possible run on deposits
- Silicon Valley Bank was taken over by the government on Friday morning – the largest bank failure since Washington Mutual’s fall in 2008
- The bank’s demise is a combination of a difficult economic environment and rising interest rates: it remains to be seen whether a savior can be found
- Now investors are concerned about First Republic Bank, whose share price plummeted 50 percent on Friday
Fears were mounting on Friday for the security of First Republic Bank, after the collapse on Friday of Silicon Valley Bank and the resulting ripple effect.
Silicon Valley Bank, the 16th largest in the United States, specialized in supporting tech businesses and has been hard-hit by both the economic conditions and inflation.
On Friday it was taken into government control, and executives are hoping that another financial institution will step in to keep the bank afloat.
Other banks were rattled by the demise of Silicon Valley Bank – among them First Republic, the 14th largest, whose shares plummeted 50 percent on Friday.
First Republic issued a statement in the late morning seeking to calm investors, pointing to its ‘continued safety and stability and strong capital and liquidity positions.’
First Republic Bank on Friday sought to reassure rattled investors, following the shock collapse of Silicon Valley Bank
A Brinks worker walks toward a truck after exiting Silicon Valley Bank in Santa Clara, California on Friday
The bank, founded in San Francisco in 1985, has 80 branches in 11 states nationwide – mainly on the West and East coasts.
Analysts expressed alarm when they noted that First Republic, like Silicon Valley Bank, had a large difference between the fair-market value (the estimated value) and balance-sheet value (the actual value) of its assets.
Silicon Valley Bank’s difference was in debt securities, while First Republic’s was in loans.
Similarly, both First Republic and Silicon Valley Bank rely heavily on customer deposits: in First Republic’s, wealthy individuals, and in Silicon Valley Bank’s, technology startups and venture-capital investors.
With interest rates rising, First Republic’s clients have ample other places to park their cash, and could seek to withdraw.
First Republic told jittery investors that their deposits were safe.
‘Sources beyond a well-diversified deposit base include over $60 billion of available, unused borrowing capacity at the Federal Home Loan Bank and the Federal Reserve Bank,’ they said.
Regarding its financial position, First Republic said it ‘has consistently maintained a strong capital position with capital levels significantly higher than the regulatory requirements for being considered well-capitalized.’
